Why bitcoin's 'compressed' valuation offers reduced downside risk versus stocks
Why it matters: Bitcoin's 'compressed' valuation may offer a safer bet than stocks amid shifting Fed rate cut expectations.
- Bitwise argues that Bitcoin has already adjusted to tighter financial conditions, making it less vulnerable to future macroeconomic shocks than stocks.
- Traders are now pricing in a near 40% chance of no Federal Reserve rate cuts this year, a significant increase from less than 3% previously, due to rising inflation expectations.
- Bitcoin has been correcting below $70,000, down over 23.7% year-to-date, reflecting its sensitivity to liquidity and investor risk appetite, according to Bitwise's senior research associate Luke Deans.
- Equities, specifically the S&P 500, have only recently begun to fall, losing nearly 8% over the past month, suggesting they entered the year at elevated valuations and are now repricing as macro conditions deteriorate.
- The Mayer Multiple, a valuation indicator for Bitcoin, has been in the lower percentiles of its historical range since January, indicating the cryptocurrency has already undergone a broad reset in expectations.
Bitwise suggests that Bitcoin, having already priced in tighter monetary policy and inflation concerns, presents reduced downside risk compared to stocks, which are only now beginning to adjust to these macroeconomic shifts. The surge in oil and gas prices has led to a significant recalibration of Federal Reserve rate cut expectations, with a near 40% chance of no cuts this year, impacting equities more acutely.
